U.S. Government intervenes in case against Sutter Health for submission of false claims in Medicare Advantage plans

The United States has intervened in a complaint against Sutter Health LLC, a California-based healthcare services provider, and an affiliated entity, Palo Alto Medical Foundation, (collectively “Sutter”) that alleges that Sutter violated the False Claims Act by submitting inaccurate information about the health status of beneficiaries enrolled in Medicare Advantage Plans, the Justice Department announced today. The lawsuit alleges that Sutter Health and Palo Alto Medical Foundation knowingly submitted unsupported diagnosis codes for certain patient encounters for beneficiaries under their care. These unsupported diagnosis scores allegedly inflated the risk scores of these beneficiaries, resulting in inflated payments to Sutter. The lawsuit further alleges that once the Sutter entities became aware of these unsupported diagnosis codes, they failed to take sufficient corrective action to identify and delete additional potentially unsupported diagnosis codes.

Under Medicare Advantage, also known as the Medicare Part C program, Medicare beneficiaries have the option of enrolling in managed healthcare insurance plans called Medicare Advantage Plans (MA Plans) that are owned and operated by private Medicare Advantage Organizations (MAOs). MA Plans are paid a capitated, or per-person, amount to provide Medicare-covered benefits to beneficiaries who enroll in one of their plans. The Centers for Medicare and Medicaid Services (CMS), which oversees the Medicare program, adjusts the payments to MA Plans based on demographic information and the health status of each plan beneficiary. The adjustments are commonly referred to as “risk scores.” In general, a beneficiary with more severe diagnoses will have a higher risk score, and CMS will make a larger risk-adjusted payment to the MA Plan for that beneficiary.

Sutter submitted diagnoses to the MAOs for the MA Plan enrollees that they treated. The MAOs, in turn, submitted the diagnosis codes to CMS from the beneficiaries’ medical encounters, such as office visits and hospital stays, and these diagnosis codes were used by CMS to calculate a risk score for each beneficiary.

The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private parties to sue on behalf of the government for false claims and to receive a share of any recovery. The False Claims Act also permits the government to intervene in such lawsuits, as it has done in this case. The whistleblower, Kathleen Ormsby, was a former employee of Palo Alto Medical Foundation.